Ann: Trading Update, page-8

Unit = Payment terminal

Smartpay has reported a very strong result in the wake of eased lockdown restrictions across the country.

In fairness, the business's financials showed resilience that I didn't personally expect over the Q2 period (where nearly all of the countries population were locked away) and thusly it was foreseeable to anticipate SMP cycling out weak sequential financials.

Smartpay's growth is a unique contribution of two vital factors at play. Namely:

Growth in the number of terminals deployed:

(see the blue line)

But arguably a bigger contributor, the average revenue per unit (on deployed units):

When I first invested in the company my investment thesis played strikingly on the number of terminals that were able to be deployed across the country.

At the time, the average RPU didn't seem such an important metric and was around $3,000 RPU at the time.

Now the emergence of the growth in average RPU has been the bigger underlying story that has contributed to SMP's overall success in Australia as shown above.

Average RPU has grown 42% over the time frame below to a quarterly figure of $1,104 (annualised = $4,416).

*The data suggests that annualising the quarterly RPU isn't necessarily the most intuitive solution for the sake of forecasting due to seasonality in consumer spending. (I.e December quarter is usually the highest due to Christmas). Hence below is just the quarterly data.

The graph below is a result of the combined two growth avenues.

In conclusion, the intuition is pretty simple.

I invested with the notion that overall sales (denoted by X) would improve. (Y the subset,= RPU, T= no. terminals deployed).

The anticipation that X would increase based on the formula: X = Y * T. whereby T was increasing rapidly over time.

Now we have a situation where both Y and T are increasing and subsequently producing a higher X.